Site Inspections: Road Map to On-Time Supplier Quality Assurance

Supplier quality issues like non-conformance management, product recalls and product failures are proving fatal for global organizations. More than ever, companies need to proactively address their supplier quality issues before they can damage businesses operations and cause serious supply chain risks and financial losses; especially when current business conditions are unfavorable. Most companies are already feeling the heat of the current financial meltdown, putting Chief Procurement Officers (CPOs) and their teams under intense pressure to reduce costs and improve cash flow while simultaneously managing an increasingly vulnerable supply base. As recession starts to bite, there is no place left for supply chain disruptions; any discrepancy in supplier quality can significantly reduce company’s revenue, impact market share, increase production cost, threaten brand image and reputation, and lead to high Cost of Poor quality (COPQ). According to a recent AMR survey, almost 67% of the cost of poor quality can be attributed to supplier failure. In an ATS commissioned survey1, the average cost of poor quality calibration costs manufacturers $1,734,000 each year; especially for large companies with revenues of more than $1 billion, the cost inflates to an average of $4,000,000 annually. Organizations can attain systematic reductions in the cost of poor quality by implementing a Quality Management System (QMS) that provides an integrated and closed loop corrective action process.

Supplier Quality Management Measures: Preventing Supply Chain Disruptions
According to AMR, supplier quality plays a critical role attributing to almost 52% of the overall manufacturing performance. In such a scenario, the need to implement streamlined supplier quality management measures can never be over emphasized. Some of the measures employed by leading global manufacturers include:

• Supplier Site Inspections: Ensuring that all supplier components and materials are sampled, examined, tested, and authenticated before being shipped. It includes tracking supplier nonconformance issues in real-time by establishing consistent procedures for components and lots that do not conform to specifications.
• Streamlined Corrective Actions: Implementing a proactive approach to supplier corrective action requests (SCARs) or corrective/preventive action requests (CAPAs) across the supply-base by following a common methodology for performing root cause analysis, assigning follow up actions while effectively tracking and routing cases from initiation to closure.
• Supplier Charge-backs: Charging cost of poor quality back to the supplier for the costs incurred by a manufacturer due to nonconforming components, materials, and late deliveries in order to introduce business discipline and accountability into the supply chain.
• Supplier Scorecards: Monitoring supplier performance on scorecards to proactively identify and implement timely corrective actions to improve supplier performance. Scorecards measure key performance indicators (KPI) in real-time and track improvements over time supporting sound decision-making based on data.
• Supplier Audits: Conducting supplier audits to ensure that suppliers meet the established product and process quality requirements and the audit process drives continuous improvement.

However, the best way to control quality is to prevent non-conformity at the source. Following this adage, most organizations today are spending a little more time upfront to identify the discrepancies, non-conformances in manufacturing and quality process at the supplier’s site itself.

Site Inspections: Addressing the Causes, Not the Effects
Most organizations today, undertake on-site supplier inspections to compare actual vs. required policy and practice standards. They employ evaluation techniques such as questionnaires, checklists, survey forms and rating systems which generate quality indices and reports on the supplier site itself; allowing them to undertake prompt remedial action if required. Onsite Inspection activities include pre-shipment inspection, random sampling, during- production inspection, and container loading check.

By capturing, analyzing, and assessing quality related issues, site inspections create total transparency and visibility into the supply chain - providing instant traceability and real time monitoring across the supplier network. Its scope includes

• Remote Site Audits: Onsite Inspections enable auditors to record qualitative or quantitative findings along with detailed observations and recommendations and a checklist of questions. A unique offline capability allows auditors to enter audit findings in notebook computers or handheld devices at remote supplier sites without access to the corporate network. They can later on synchronize the data with the central repository when they have access the network. These findings and recommendations can then be routed for reviewing and rating of supplier’s quality performance.
• Inspection Data and Quality Indices: Collecting, plotting, and analyzing inspections data helps in monitoring and rating of supplier’s performance against quality indices.
• Corrective and Preventive Actions: Onsite Inspections' findings and recommendations pave way for triggering SCARs/CAPAs, performing root cause analysis, assigning follow up actions while tracking and routing cases from initiation to closure.
• Supplier Performance and Evaluation: All data across multiple systems is collected and presented in various reports. A total score is calculated for different suppliers with drill down to the different groups for factors such as quality, service, and delivery. By cross combining data, such as business volume and performance score, these reports support decisions like phasing out low performers versus improving the relationship with them.
• Risk Management Tool: When supplier performance management is embedded in general supply chain decision making processes, it can also play a vital role as a risk management tool. Used correctly, it helps organizations that want to establish a global supply network to successfully implement their operating strategy.

Key Benefits of Site Inspections: Benchmarking Supply Quality Standards
From management perspective, site inspections accrue a quantifiable return on investment - fast and just-in-time quality production and reduction of both order cycle times and inventory levels. Few of the tangible rewards are listed below:

• Reduced Costs: On-site inspections help companies take proactive remedial actions to reduce their costs of poor quality (COPQ). Timely identification of non-conforming and poor quality components help save shipment costs and costs of late delivery.
• Monitored Supplier Performance: Site inspections provide real time visibility into supplier’s performance - evaluating manufacturing techniques, assembly procedures or quality issues, and ensuring that the production is as per requirement. Monitoring product quality via performance metrics and scorecards ensures quality adherence and customer satisfaction along with helping in identification and qualification of new vendors.
• Enhanced Product Quality: Procurement of faulty or low quality raw materials can cause serious quality defects in the final product. For example, Ford Motor Co. incurred huge losses due to procurement of faulty tires, losing about $3 billion. On-site inspections can avert such losses by ensuring shipment of high, acceptable and standard quality raw materials.
• Accelerated Issue Resolution: Site inspections can help in proactive identification, tracking and resolution of quality issues before they become major events.

Technology Driven Solutions: Getting the Best Out of Site Inspections
Site inspections provide insight and visibility to potential supplier problems so that they can be rectified on time. This helps in ensuring quality procurement, compliance adherence, and costs reduction. Below are the ways by which you can leverage technology to ensure that your site inspections become beneficial in enhancing supplier quality:

• Deploying a web based system and granting access to suppliers helps in easing the tasks related with quality management. By instituting a web-based system, supplier’s can enter inspections data enabling the manufactures' supplier quality team to gain a real-time visibility into the inspections data, without indulging in manual process of data collection and reporting.
• Integrating real-time inspections data into a common enterprise wide database helps in eliminating inconsistencies and errors. This holistic approach for heterogeneous environments can help in standardizing the methodology to analyze, resolve and prevent quality issues.
• Recording of inspections data and activities helps in creating an appropriate track of all inspection activities. The inspections data can then be used for trend analysis and business intelligence.
• Streamlining the entire onsite inspection process helps in timely implementation of corrective actions if a quality issue arises during the inspection process.
• Implementing an automated quality management process resulting in significantly lower cost of poor quality.

Conclusion
Quality issues not discovered and addressed prior to shipment can hurt the bottom line of any organization. World-class manufacturers are realizing the need to maintain a consistent and systematic quality process to gain real time inspections data with analytics of trend analysis. AMR2 reports in 2007 survey that 46% of companies planned to implement supply chain risk management technology in the next 12 to 24 months. Leading organizations are replacing their manual and paper-based systems with technology-driven solutions, like MetricStream (www.metricstream.com), to achieve complete automation of supplier quality management. By improving operational efficiencies in quality systems, automated solutions enables companies to create a transparent environment for proactively identifying, tracking and resolving quality issues. Moreover, the embedded best practices for supporting key processes and requirements for standards and regulations such as ISO 9000 and FDA cGMPs lower the cost of regulatory compliance and risk of noncompliance.